Indraprastha Gas Limited – 4 Point Stock Analysis

Indraprastha Gas Limited Stock Analysis

Introduction

In this blog, we present a 4 point analysis of Indraprastha Gas Ltd. We’ll discuss their business overview and promoters, shed some light on the recently announced Q2 FY21 results as well as assess the future outlook of the company.

4 Point Analysis of Indraprastha Gas Limited

1. Business Overview

• Indraprastha Gas Limited, is one of India’s leading natural gas distribution companies. They process and distribute natural gas as cooking (PNG) and vehicular fuel (CNG). Established in 1998, the company operates primarily in the Indian state of Delhi.

• The transport sector uses natural gas as Compressed Natural Gas (CNG) while the domestic and commercial sectors use it as Piped Natural Gas (PNG).

• The project was started to lay the network for the distribution of natural gas in the National Capital Territory of Delhi to consumers in the domestic, transport and commercial sectors.

• The primary business objectives of the company is to provide safe, convenient and reliable natural gas supply (i.e. CNG, PNG & R-LNG) to its customers in the domestic and commercial sectors. They also aim to provide a cleaner, environment-friendly alternative as auto fuel to residents.

• Major areas of operations spread across several parts in Northern India. They also operate extensively in Maharashtra through their subsidiary – Maharashtra Natural Gas Ltd.

• IGL sells CNG to over 12 lakh vehicles in NCR through a network of 560 CNG stations. It also supplies piped cooking gas to nearly 15 lakh households in these cities.

2. Promoters

• Incorporated to take over and operate the Delhi City Gas Distribution Project from GAIL for laying a network of gas distribution pipelines in Delhi.
• It started as a joint venture between GAIL, Bharat Petroleum and the Government of NCT of Delhi. Even today, Indraprastha Gas Limited continues to be is backed by same set of strong promoters

3. Q2FY21 Results Highlights

• IGL reported a 23.1% decline in revenues owing to dampened sales of their major contributor i.e. CNG. CNG volumes down by 20.3% due to Lock-down & Transport Restrictions.

• However, the silver lining is the company witnessed a 9% jump in EBITDA . Also recorded a robust growth of 10% in EBITDA Margin  in comparison to the previous year.

• To battle the plunge in revenues, the cost cutting measures adopted by the company are yielding  fruitful results as their Profits Before Tax (PBT) have increased by 8.4% from Rs.368 Crore last year to Rs.399 Crore this year.

• It won’t be fair to compare the Net Profits of IGL on YoY basis as they had received a tax rebate of 4% in Q2FY20, while they had to pay taxes of 23% in Q2FY21.

4. Future Outlook

• The Government of India is focusing laboriously on Natural Gas as an Alternative for Energy Resource. The current market share of Natural gas is 6.2% and the government aims to amplify that to 15% by 2025. This implies a 11%-12% CAGR over the next 10 years.

• With the easing of restrictions nationally and no further lockdowns henceforth, the core economic activities can function smoothly and even flourish beyond the pre-covid levels.

• The ripple effect is coming into play. Improving movements in transportation are resulting in higher volumes thereby giving new impetus to revenues and profits. 

• Under GRAP (Graded Response Action Plan), Government of India has banned the usage of Diesel Gensets in Delhi neighbouring cities.

• That’s when Indraprastha Gas announced that they will help housing societies as well as commercial establishments to replace diesel in generators to environment-friendly natural gas.

• IGL launched a green initiative called “Gas Based Genset”, through which they plan to offer diesel-run genset users in residential complexes, commercial establishments and industrial units based in Delhi, Noida, Greater Noida, Ghaziabad and other parts of Gurugram, an appropriate solution to convert their electricity generating units to natural gas.

• In addition to getting uninterrupted power supply Gas based Gensets provide numerous advantages such as – no emissions, low & less frequent maintenance, no fuel storage hassles and savings as no transmissions & distribution losses.

• Fuel Efficiency & cost effectiveness further enhanced by recovering waste heat to generate chilling/cooling/heating effect, hot water steam generation etc.

Conclusion

Indraprastha Gas Ltd is proving their mettle by not letting the detrimental impacts of the pandemic stymie their growth and profitability. We must keep an eye out for how the company aims to thrive and maintain the momentum in their operating profit margins in the upcoming quarters. 

The Gas Based Gensets initiative is representing a significant opportunity for IGL to capitalize on and could be a possible future growth engine for IGL.